Best of the ISP-Lists

Mbit Pricing in 2008

The experts on our ISP-Lists discuss the future price of bandwidth. Of course everyone expects the price to drop, but few agree on how much or why.

[December 10, 2007]

On the ISP-Bandwidth list in November, JJ asked:

Already seeing $7 per meg and I keep hearing about 5$ per meg prices. How low can the market go?

[DW complained] "At what cost though? The service keeps getting poorer and poorer even from the top tier companies. Large large networks are having 3+ day outages on 1000+ Mbps commit lines. So are we really getting a deal?"

[PK claimed] "Bandwidth pricing will continue going down. I doubt it will go bellow $5 in 08 but I wouldn't be surprised to see pricing going down to $1 per meg by 2010-2012. The 100 Gbit interface will hit the market by that time and we all saw how switching from gigE to 10GE got inexpensive over last 2 years and it brought bandwidth prices down. You can expect the same trend with 100 Gbps Falling bandwidth pricing isn't always bad news. Many companies will continue spending the same amount of revenue and just buy more bandwidth."

[MG argued] "Well, all this pricing is coming from the same source. If your reselling Hurricane Electric like these offers its possible. Not the norm."

[PK replied] "There are actually four other carriers who can hit that $5 per meg price if you can swing enough traffic their way, so I wouldn't call that single source. Also, considering tier1s are selling below $10 per meg nowadays, it is not so hard to imagine other tier 2s and 3s will go down to or close to $5 per meg. Why would anyone pay $8 per meg for tier 3 bandwidth of you can get tier 1 for the same price ?

Now of course anything I said above is subject to your location and amount of commit you can swing."

[AR contested] "Please bear in mind, when making such claims, that a $7,000 MRC for a full gigabit port seldom works out to $7 per meg.

...

In summary, it will be interesting to see how things shake out in terms of bit-per-hz metrics. Assuming identical ratios, a single 100G interface will require the same channel space as 10 x 10G interfaces. Therefore, one could expect easier manageability and link aggregation, though not necessarily additional transport capacity or lessened transport pricing (which ties back into our initial discussion)."

...

Lastly, what people are running today are n*10G transport systems, andin some cases, OC-768 backbone interfaces, not draft 40/100G Ethernet."

CK guessed that technology would be irrelevant to prices in 2008:

Yes, bandwidth pricing will be lower in 2008. It is anyone's guess asto how much lower. IMHO the driving force will be economy/marketforces, not technology.

The aggregators are in trouble as they signed large deals for fixed pricing, for what at the time was great pricing. Then the direct sales reps squawked, and it is possible to get better pricing direct. We have already seen one aggregator cut and run, leaving all of his clients high and dry. As a result you can get better pricing direct from the carrier then from any aggregator. Of course, the aggregators will deny this; and a lot of clueless direct sales reps still complain about the aggregators.

[JJ agreed] "I think the smaller players and aggregators are the ones driving the prices down. I talk to a lot of customers who use HE and everyone seems to happy. Even Cogent has got a lot better compared 4-5 years ago."

[ML disagreed] "I only think that is true at the carrier hotels where there isn't really some compelling technology on the horizon to change cost structures. When you get out of the carrier hotels it is a totally different matter. Ethernet last mile services have a huge cost advantage. Couple that technology with alternative access and you have disruptive pricing.

My company doesn't compete in the carrier hotel transit space. We do compete in the last mile DIA space though. There DSx-based services aren't really changing in price. Ethernet-based services though have seen steady price drops. For example, we offer 100Mbps DIA for anywhere for less than $4000 MRC. That is with a fiber build out. Obviously, everyone sells for less in on-net buildings, but what percentage of buildings are on-net? I personally will be interested to see what happens to last mile pricing in 2008.

[PR warned] "A few things will come into play:

Power pricing and availability, which we are already seeing as capping collocation and what can be done in some centers.

Access to ILEC fiber is now unregulated per the last round of forbearance. I have already seen where access to dry fiber in BellSouth territory by CLECs has been eliminated, so it will be private carriage rates for anything other than a TDM T1 or T3, which are the sacred cows, saved from slaughter so far.

At some point many of these carriers are going to switch to IPv6.That CAPEX spending is going to have to be paid for. How is the big question."

— End